Retailers Lead Surge In UK Profit Warnings Amid Brexit And Election

(Alliance News) - The number of London-listed companies making profit warnings reached an 18-year high in 2019, with retailers in particular feeling the brunt of political instability, numbers showed on Sunday.

According to figures compiled by accounting firm Ernst & Young, UK quoted firms issued 313 profit warnings in 2019, up 9.1% from 2018. Crucially, 17.8% of all London-quoted companies issued warnings, higher from 17.7% last year and the highest level since 22.7% in 2001.

EY's Head of Restructuring Alan Hudson said: "2019 was a challenging year, full of twists and turns that undoubtedly contributed to a remarkably high level of profit warnings. A toxic combination of protracted uncertainty and rapid sector change, left many companies facing an uphill struggle to meet their earnings forecasts in 2019."

In the fourth quarter alone, 22% of profit warnings from companies cited "political uncertainty", according EY's report.

The UK's political landscape was mired in Brexit-related uncertainty, and in October, the date for the country's European Union withdrawal was extended for a third occasion, this time to January 31.

"Over a third of warnings also pointed to delayed or cancelled contracts, a clear indication of the impact of uncertainty on earnings," EY added.

There was also the matter of a general election in December, which may have also weighed on consumer sentiment, something which particularly hurt retailers.

Earlier in January, British Retail Consortium Chief Executive Helen Dickinson said: "Twice the UK faced the prospect of a no-deal Brexit, as well as political instability that concluded in a December general election - further weakening demand for the festive period."

Retailers led the way, with 32 profit cautions in 2019, and what's more, by mid-January, the total number of profit warnings in the sector had already matched the four warnings issued in the the whole of the final quarter of 2019. However, warnings from retailers fell by 11% in 2019 to 32 from 36 in 2018.

EY Restructuring Partner Lisa Ashe said: "Weak consumer confidence, rising costs and intense promotional activity have created an exceptionally tough climate for retailers, who face an additional race to adapt to rapidly changing shopping habits. Post-Christmas trading updates once again underlined the stark contrast between the retailers that are creating a compelling, engaging online and store offering, and those who have fallen behind."

Industrial Support Services and Software & Computer Services companies were hot on retailer's tails, with 25 warnings in 2019, the report showed.

Profit warnings from Construction & Materials firm also reached a seven-year high in 2019.

Elsewhere, EY said: "FTSE Technology Hardware & Equipment had the highest percentage of companies warning in 2019 at 56%, with earnings hit by the US-China trade dispute and slower growth in key end-markets – especially automotive."

So far in 2020, there have already been profit warnings from recruiter Hays PLC, building materials supplier SIG PLC, insurer Hastings Group Holdings PLC and luxury car maker Aston Martin Lagonda Global Holdings PLC.

And in retailers, the sector which suffered the most profit warnings, there have already been cautions from struggling fashion brand Superdry PLC and clothing and homewares outfit Joules Group PLC.

Eyeing the year ahead however, EY's Hudson said that while London-listed stocks could be in for a less bruising 12 months, as far as political uncertainty goes, the threat of a spate of profit warnings has not waned.

He explained: "Easing political tensions and promises of UK fiscal expansion could help more companies beat depressed expectations in 2020. The median share price fall on the day of warning fell to a two-year low in the second half of 2019, which suggests that investors have priced in some of their concerns. But, underlying stresses and tensions mean that profit warning numbers could rise quickly again. Companies need to remain flexible, agile and alert to changes on multiple horizons."

By Eric Cunha; ericcunha@alliancenews.com

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